Shrinking Wages Will Help Make Md. Budget Gap Twice as Big

By Aaron C. Davis
Washington Post Staff Writer
Friday, September 18, 2009

Shrinking paychecks for some of Maryland's wealthiest residents, along with new data showing wages falling across the state, will mean smaller state income-tax payments headed to Annapolis next spring and a budget problem twice the size of what officials predicted just months ago.

Maryland faces a budget hole of almost $2 billion in the fiscal year beginning next summer -- a gap equal to the shocking one lawmakers contended with last year but magnified by deep cuts made to almost every state program to close that and other shortfalls since the recession began.

The gap, which is equal to 14 percent of this year's budget, sets up an election-year budget battle sure to increase pressure on Gov. Martin O'Malley (D) to address unpopular budget solutions his administration has so far avoided, such as shifting costs of teacher pensions to local governments.

It also provides fuel to critics who say O'Malley has not gone far enough to make permanent cuts that will restrain state spending in future years. More than three-quarters of the cuts the governor proposed last month to close a widening gap in Maryland's current budget year were one-time fixes that will not help solve next year's problem.

The new fiscal projections were released Thursday by the state's Board of Revenue Estimates. Hours later, Warren Deschenaux, the legislature's chief fiscal analyst, told a panel of state lawmakers that without corrective action or a larger-than-predicted economic recovery, state spending is forecast to outpace revenue by at least $2 billion each year through 2014.

Responding to the estimates, O'Malley released a statement listing the more than $4 billion in cuts he has supported since 2007, saying his administration has repeatedly "acted quickly and responsibly" to address shortfalls and would do so again.

T. Eloise Foster, his budget secretary, said she would recommend making an additional $290 million to $300 million in cuts quickly to close the remaining gap in the current year.

David F. Roose, director of the Bureau of Revenue Estimates, said the bad news was rooted in part in recent data that showed wages in the state falling almost 3 percent in the first quarter of this year. They had been projected to grow slightly.

Falling tax revenue from the state's largest income-earners also makes up a large share of the problem. Revenue from capital gains, for example, fell 64 percent in 2008 and is projected to fall 33 percent this year.

Comptroller Peter Franchot, who sits on the revenue board, said neither Democrats or Republicans want to make the tough choices needed to truly deal with the state's fiscal problems.

"There's a certain amount of wishful thinking in Annapolis that we can muddle through and the recovery will arrive sooner than later," he said.

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